Italian election should be colorful, indecisive

Commentary: Bersani-Monti coalition would bring more muddling along

WASHINGTON (MarketWatch) — Italy will have the first shot at setting the tenor for Europe in 2013 with national elections next month in which two of the top candidates appear to be running for finance minister instead of prime minister.

Three-time Prime Minister Silvio Berlusconi announced this week that his People of Freedom party would join forces with the Northern League and that neither he nor Roberto Maroni, the leader of the League, would be prime minister.

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Italian center-left leader Pier Luigi Bersani is likely to become prime minister in a fragile coalition following February elections.

Berlusconi said he would instead be finance minister to demonstrate that he has no “political ambitions.”

His declaration follows that of outgoing “technocratic” Prime Minister Mario Monti at the end of the year that he would not campaign but would front a coalition of centrist parties in the elections to be held Feb. 24-25.

With the left-leaning Democratic Party of Pier Luigi Bersani holding a decisive lead in the polls, it looks like the best Monti can hope for is a post as finance minister in a coalition government.

But the election will give an indication of how restive Italian voters are as the euro crisis drags into its fourth year.

Berlusconi has said he will “stand up” to German Chancellor Angela Merkel in a way that Monti was never able to do. In joining forces with the federalist Northern League, he backed their quest for the lion’s share of government revenue to stay in the northern regions that provide it.

The League’s goal of more fiscal autonomy for regional governments mirrors similar aims by Catalonia and other Spanish regions to keep more of their tax revenue as austerity policies crimp government spending.

The partnership between Berlusconi and the League makes it more likely than ever that the elections will be indecisive and will produce a fragile coalition government.

This would be par for the course in Europe after Greek and Dutch elections last year resulted in shaky coalitions that remain vulnerable in a crisis.

But in both those cases and in all likelihood in Italy as well, voters have come down on the side of preserving the euro
EURUSD, +0.4665%
and at least tolerating for the time being the austerity that policy makers in Brussels and Berlin have decreed as necessary.

In part because investors remain preoccupied with the fiscal cliff and debt-ceiling debates in the U.S., financial markets are giving something of a respite to the euro.

But the situation remains tense. In Italy, for instance, the protest party of comedian Beppe Grillo, the Five Star Movement, is even in the polls — at about 15% each — with the coalition backed by Monti, who has been hailed by other European leaders as a hero for his year-long tenure as prime minister.

In Greece, the grand coalition of Prime Minister Antonis Samaras voted in last June has already lasted longer than many predicted, but the ever-popular Coalition of the Radical Left of Alexis Tsipras is waiting in the wings if that government should collapse.

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In Spain, Prime Minister Mariano Rajoy is getting kudos for his dumb-like-a-fox strategy of dragging his feet on applying for bailout funds and getting the benefits of the European Central Bank’s pledge to support the country’s bonds without actually submitting to austerity policies dictated by Brussels.

But the political situation there remains unsettled. Catalonian voters supported pro-secessionist parties in a November regional election. Other signs of resistance to Madrid’s self-imposed austerity continue to surface — as in the recent refusal of locksmiths in Pamplona to assist in evictions as Spain’s imperiled banks ruthlessly continue foreclosures.

The only other national elections in a major European country scheduled for this year are those in Germany in September, where, unless there is some full-fledged catastrophe in Europe, Merkel seems headed to a third term as chancellor.

So for now, all eyes are on Italy. According to the latest poll, Berlusconi’s new coalition has a little over a quarter of the vote, though the former prime minister contends they will get 40%. The Democratic Party really does have nearly 40%, but clearly not enough to form a government by itself.

Barring a surge by Berlusconi to get the 40% of the vote he predicts, polls in Italy indicate that Bersani will become prime minister and Monti finance minister, and this would mean continuity in Europe’s current strategy of muddling through. At least until the next big crisis.

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